A survey of the foreign exchange reserves risk management Strategies adopted by the Central Bank of Kenya
Abstract
The purpose of this study was to survey the various types of foreign exchange reserves
risks faced by the Central Bank of Kenya and the strategies adopted by the Bank to
manage these risks. The research was a case study of the Central Bank of Kenya. A
questionnaire to seventeen technical staff working in the reserves management department
of the
Central Bank of Kenya was used to collect the relevant data. The collected data was analysed for
content using SPSS Software and the results were presented using tables and pie charts.
The study found that the key foreign exchange reserves risks faced by the Central Bank
of Kenya were; credit risk, liquidity risk, sovereign/political risk, operational risk and
market risk. The risk management strategies adopted by the Bank in managing these risks
included but were not limited to; internal control procedures, portfolio
construction, tranching of reserves and strategic asset allocation.
The study recommends establishment of a framework that identifies and assesses the
risks of reserves management operations that allows the management of risks within
acceptable parameters and levels. The framework should seek to identify the possible risks that
may impact on portfolio values and to manage these risks through the measurement of
exposures, and where necessary, supporting internal control procedures to mitigate effects
of these risks. The study also recommends the
determination of risk parameters that include the minimum acceptable credit ratings for the
counterparties to deal with. The study further recommends the continuous monitoring of
risk exposures to determine whether exposures have been extended
beyond acceptable limits. Value at Risk (VaR) or other simulation methodologies may be
adopted as part of the risk management and monitoring framewok
Citation
Masters in Business AdministrationSponsorhip
The University of NairobiPublisher
School of Business